On Thursday, May 28, the Bureau of Economic Analysis (BEA) issued an automatic one month extension to all first time filers of the BE-10 Benchmark Survey of U.S. Direct Investment Abroad. The extension grant, coming one day before the original filing deadline of May 29, has moved the deadline for all first time filers to June 30, 2015. This blanket deadline extension follows the publication of an FAQ clarifying the potential filing obligations of U.S. private funds. The BE-10 Survey, previously collected in 2010, imposes mandatory reporting requirements for all U.S. persons who control 10% or more of the voting securities of any non-U.S. affiliates. For additional information about the BE-10 Survey and a U.S. person’s reporting obligations thereunder, see the Dechert OnPoint "New Reporting Requirements Regarding Foreign Investment and Ownership."

Important Clarifications for Asset Managers and Insurance Companies

The BEA has provided oral clarification on two items that have been sources of uncertainty for many potential BE-10 reporters.

First, the BEA addressed an ambiguity in the BE-10 Instructions by making clear that indirect ownership of a foreign entity only gives rise to a BE-10 reporting obligation where the U.S. reporter owns 10% or more of the voting securities of the first foreign business enterprise in the ownership chain. That is of particular relevance to asset managers who manage master-feeder structures where a foreign master fund does not issue voting interests (if it issues non-voting limited partnership interests, for example). Accordingly, a domestic feeder fund that holds non-voting interests would not report, on a “look through basis”, on potential direct investments of the foreign master fund itself because the feeder fund’s holding is a “portfolio investment” and not a “direct investment” (feeder funds should keep in mind, however, that TIC Form filing obligations may apply).1 The definition of the term “U.S. direct investment abroad” in Instruction II.R of Form BE-10A uses a reference to “indirect” ownership that had led to confusion for some.

Second, the BEA provided oral clarification about the requirement that reporters follow U.S. generally accepted accounting principles (GAAP) in their BE-10 filings in the case of reporters that do not maintain U.S. GAAP-based financial records. The BEA acknowledges that many U.S. insurance companies instead use statutory accounting principles in preparing their financial statements, and that reporters in other industries or countries may also be subject to accounting protocols other than U.S. GAAP. The BEA directs such reporters to the instructions to its BE-12 Survey (Benchmark Survey of Foreign Direct Investment in the United States), which provide that if using U.S. GAAP is highly burdensome, or otherwise not feasible, reporters may use other financial reporting standards, preferably with adjustments to correct for any material differences between U.S. GAAP and the reporting standards used. The BEA has indicated that this guidance can also be applied to the BE-10 Survey because it is more specific and reflective of BEA’s current views than the corresponding paragraphs in Instruction II.A of Form BE-10A.